Банкеръ Weekly

Briefs

IMF TO ASSESS THE GOVERNMENT'S LAPSES IN NOVEMBER

Piritta Sorsa, IMF Resident Representative for Bulgaria, to the BANKER weeklyMs. Sorsa, what remarks and recommendations did IMF Executive Board made to Bulgaria when discussing the fulfillment of the stand-by agreement on July 22?- The Board commended Bulgaria for maintaining maroeconomic stability with fiscal prudence and progress with some structural reforms, such as the passing of the new Privatisation Act, the increase of electricity prices, and measures in the education sector. However, the IMF executive directors also emphasized that higher growth and reduction of unemployment and poverty required completion of structural reforms (in particular energy sector, business environment, and public sector). They also supported a tighter fiscal stance, proposed by the Government, should the external environment worsen, and the medium-term fiscal policy target of zero deficit with lower tax burden offset by cuts in subsidies and unproductive spending. Medium-term growth and competitiveness also call for measures to improve corporate governance, enhance judicial procedures and foreclosure, and improve labour market flexibility to attract more investment and reduce unemployment. What are the new commitments under the memorandum, discussed by the fund's executive directors on Monday, which the Government should fulfill by the year-end?- The IMF Executive Board reviewed the implementation of Bulgaria's commitments by end-March, connected with the budget deficit, fiscal reserve, working wage fund, etc., and six programme measures. Quality targets have been set for each quarter till the year-end. The law on bank insolvency should be passed by Parliament as well, and Biochim Commercial Bank is to be privatized.A mission of the IMF will arrive in November to assess implementations of the requirements whose term is end-June, July or September. Then the progress of the programme's fulfillment will be assessed and the allocation of one more tranche will depend on it.How would the Bulgarian Government's relations with the IMF be influenced if these terms and requirements are not satisfied?- We'll have to wait. Many things could happen before the review in November. What is important, however, is to assess the overall effect of the package of measures and what actions have been undertaken to correct the mistakes. If the fulfillment of some requirements has been delayed, we should simply decide how to assess the entire package of measures for the allocation of the next tranche.And yet, which are the more important requirements in the package?- The IMF makes a distinction between criteria of the fulfillment and benchmarks. Most of the measures regarding the economic policy are benchmarks. The quality criteria, connected with the budget, the fiscal reserve, etc., are more weighty. Moreover, there is also a requirement for settling the intercompany liabilities in the energy sector by end-September. All these quality criteria for assessing the programme's implementation are more powerful in the stand-by agreement. The Government has drafted a new three-year tax strategy. Do you think it would really result in a relief of the tax burden or will the increase of indirect taxes practically neutralize the effect of the reduction of direct taxes?- We'll discuss with the Government the details of the 2003 budget in September when a special IMF mission will arrive in Bulgaria. I don't know how the new proposals for the tax policy would influence the overall tax burden, but I suppose it would continue to go down as a share of the gross domestic product, which is the real goal. What are your recommendations for reducing the taxes in Bulgaria and improving the investment climate?- In my opinion, the Government's steps for reducing and simplifying direct taxes and hiking indirect taxes are appropriate, because this would encourage mid-term savings. It is important for the taxation system to be simple and transparent and that the tax rates are reduced gradually. This could be achieved if the collectibility is improved continuously and expenses are under control. I believe social insurance rates should be gradually cut down as well.Do you think that the Government's policy has really achieved a restructuring of the country's economy? The ministers have been much criticized recently.- According to me, there are indications that the economy is changing. If you look at the export's structure, you'll notice an increase in the export of products, manufactured by labour-consuming industries, such as the textile industry, ready-made clothes, and furniture-making, despite the delayed economic growth in Europe. These sectors are gradually changing the appearance of Bulgarian industry, which was mainly heavy and much dependent on the supply of inputs. In addition, the sector of services and leisure industry especially, are developing. Of course, there are some incompetitive productions where structural changes will become necessary in the future.Has your appraisal regarding Bulgaria's foreign debt swap deal been changed several months after it was effected?- No, it hasn't. I think the main positive effects of swapping Bulgarian Brady bonds for new government securities - the reduction of the currency risk and interest risk, and the establishment of a benchmark for Bulgaria on the international capital markets - will remain despite the change in the USD/EUR exchange rate, which has probably influenced the impact of the swap deal on the debt in euro.

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